AWARD, PRIZE, GIFT AND INCENTIVE

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1 AWARD, PRIZE, GIFT AND INCENTIVE Revisin: v.3 EFFECTIVE DATE: July 1, 2010 POLICY/PROCEDURE ISSUED FROM: Office f the Cntrller POLICY STATEMENT: This plicy will cver awards fr length f service, retirements, meritrius service, the A. Jane Mrtn Award and ther miscellaneus awards, prizes, gifts and incentives. The use f awards, prizes, gifts and incentives are needed t recgnize and encurage dedicatin, supprt and participatin f emplyees, students, and friends f the University in carrying ut the University s missin. The awards, prizes and incentives may be used t supprt that missin prvided that they are reasnable in price and cmply with IRS regulatins. This plicy prvides guidance n the taxability f these frms f recgnitin and achievement.. Taxability f Cash and Nn-cash Awards, Prizes, Gifts and Incentives 1. Cash awards, prizes, gifts, and incentives Cash awards, prizes, gifts and incentives are ALWAYS taxable. These items when given t emplyees and paid with University funds (including state funds, grant funds, cntract funds, gift funds, agency funds, etc.) cnstitute grss wages subject t federal and state incme and FICA taxatin. Fr purpses f this plicy, cash includes gift certificates r gift cards. Gift certificates and gift cards are prhibited based n cash equivalency and safeguarding cncerns. 2. Nn-cash awards, prizes, gifts, and incentives Nn-cash awards, prizes, gifts and incentives given t emplyees are subject t federal and state incme and FICA taxatin UNLESS these items f recgnitin qualify as ne f the fllwing within the definitins belw: A de minimis fringe benefit A prize r award given directly t charities Emplyee achievement award Length f service award Qualified Plan Safety Achievement award Qualified Plan a. Nn-taxable De minimis Awards and Prizes A prize r award that is nt cash r cash equivalent, is f nminal value and is prvided infrequently is excludable frm an emplyee s wages. Prizes r awards that are given frequently t an emplyee d nt qualify as an excludable de minimis award, even if each award is small in value. IRC S132(e) The ratinale is that these items f recgnitin cnstitute de minimis fringe benefits that are cnsidered s small that accunting fr them wuld be unreasnable r administratively impracticable.

2 Examples f Excludable De minimis Awards BSU Athletic and event tickets (see Ntes t Awards Table fr mre details) May nly receive tickets nce a year Tickets are sld t the general public in the rdinary curse f business BSU incurs n substantial additinal cst (including frgne revenue) Lg merchandise T-shirts, cffee mugs, etc. Artist Series Entertainment events (Emens) Cardinal Lanes bwling Meal tickets (n-campus dining) Nminal fr this purpse means small in value, relative t the value f ttal cmpensatin. This plicy sets the dllar limit at $40. Cliff Prvisin If an emplyer prvides an award that exceeds either the value r frequency limitatins fr de minimis fringes, the entire award is included in the emplyee s wages, nt just the prtin that exceeds the de minimis limits. Reg. S (d)(4) b. Nn-taxable Prizes r Awards Given t Charities Certain prizes and awards given fr charitable, scientific, artistic r educatinal achievement are nt taxable t the recipient if transferred t a charitable rganizatin. IRC S74(b) (This sectin relates t BSU emplyees wh receive awards frm utside third parties. If they direct the third party t directly bestw the award t a charity and it meets the requirements specified belw, it becmes nn-taxable t the emplyee) Examples: Nbel Peace Prize and Pulitzer Prize fr Jurnalism Requirements fr exclusin: Award is fr achievement Recipient is selected withut entering any cntest N substantial future services are required Recipient transfers the award t a charitable (IRC S170(c )) rganizatin prir t receiving the benefit. Example: A cllege instructr is chsen as teacher f the year by a natinal educatin assciatin. He is awarded $1,000, which he directs the educatin assciatin t transfer t a cllege schlarship fund at the institutin where he teaches befre accepting it. The award is nt taxable t the cllege instructr.

3 c. Emplyee Achievement Awards These awards are managed and distributed thrugh the Human Resurces Office ONLY. An emplyee achievement award is an item f tangible persnal prperty fr length-f-service r safety r ther sanctined award prgrams administered by the Human Resurce Office. (CASH AWARDS ARE ALWAYS TAXABLE.) In rder t be excludable frm wages, special requirements and dllar limitatins must be met. A qualifying award: Must be a given fr length-f-service, safety, r ther Human Resurce-spnsred emplyee achievement prgrams. Cannt be a disguised wage Must be awarded as part f a meaningful presentatin Must be an item f tangible persnal prperty (Cannt be cash, cash equivalent, vacatins, meals, ldging, theater r sprts tickets, stcks, bnds.) Must meet ther special requirements and limitatins, discussed belw. Reg S (c ) Nte: Taxable if cash r cash equivalent, r if ver certain dllar limits. 1). Length-f-Service Awards Qualified Plan Award (Includes Retirement Gifts) An award will nt qualify as a length-f-service award if either f the fllwing applies. The emplyee received the award during his r her first 5 years f emplyment. The emplyee received anther length-f-service award (ther than ne f very small value) during the same year r in any f the prir 4 years. Nte: A traditinal retirement award is an exceptin t the 5-year rule. Reg. S (d)(2) SPECIAL NOTE: RETIREMENT GIFTS The ONLY retirement gift that is apprved by the University cnsists f tangible persnal prperty distributed thrugh the Office f Human Resurces. The University WILL NOT reimburse individuals r pay fr gifts thrugh any University (r agency) accunts fr additinal retirement gifts. If the department wishes t make a persnal gift, they may pass the hat t cllect funds frm individuals t cver this cst. N retirement gifts are t be reimbursed thrugh the Fundatin. 2). Safety Achievement Awards Qualified Plan Award An award will nt qualify as a safety achievement award if either f the fllwing applies. It is given t a manager, administratr, clerical emplyee, r ther prfessinal emplyee. During the tax year, mre than 10% f the emplyees, excluding thse listed in (1), have already received a safety achievement award (ther than ne f very small value.) Eligible emplyees must have wrked full-time fr a minimum f ne year prir t the award. Reg. S (d)(3) Example: If an agency has 50 eligible emplyees and 6 receive safety awards, the 6 th award is taxable because 10% f the eligible have already received it.

4 3). Other Human Resurce-spnsred Emplyee Achievement Award Prgrams This wuld include the Jane Mrtn Award and similar awards. N ther emplyee awards will be recgnized r reimbursed by the University. Hwever if the value f these awards d nt meet the de minimis definitin, it will be deemed taxable and the fair value f the award will be added the emplyee s IRS Frm W-2. Qualified Plan Award An award is a qualified plan award if it is: Made under an established written plan, and Des nt discriminate in favr f highly paid emplyees Awards Funded by Third Party If funds fr awards r prizes are prvided by an utside party, the award is taxable in the same way as if prvided directly by the emplyer. If the funds are turned ver t the emplyer t select and distribute the awards, the emplyer is respnsible fr all applicable payrll taxes and withhlding. IRC S 3402(d) Example: A bank prvides funds t the University t supprt a special perfrmance award prgram. The University chses the recipients and distributes the awards. The value f the awards are additinal cmpensatin t these emplyees and reprtable n their Frms W-2, subject t payrll taxes and withhlding. This answer wuld be the same even if the utside party were a nnprfit rganizatin r an educatinal fundatin. In the case where the utside party selects and distributes the award directly t a University emplyee withut any directin r decisin making frm University persnnel, then the award is incme t the recipient and must be reprted. The utside party wuld be required t furnish a Frm 1099-MISC t the recipient if the amunt is $600 r mre in a calendar year. Example: A televisin set, dnated by a business t the University, is awarded thrugh a randm drawing t an emplyee. The fair market value f the televisin wuld be cnsidered taxable wages t the emplyee. Prizes in a randm drawing f emplyees are cnsidered wages. A televisin set is nt cnsidered a de minimis benefit. If the University pays the taxes n an award, the tax paid n behalf f the emplyee is taxable under the grssing up prcedure. The additinal payment fr the taxes is a taxable item and must be included n the emplyee s Frm W-2 in the year the payment was made. See sectin 7 f Publicatin 15-A, Rev. Prc and Rev. Rul Example: Special duck prints dnated by artists are given away as awards t emplyees. Fr purpses f determining the taxable value, the FMV can be determined by an appraisal, by establishing the sales price f similar prints by the artist, r by any ther reasnable methd. The taxability f the value f the prints t the emplyees depends n the type f award, dllar limitatins and ther specific requirements.

5 Prcessing and Reprting Guidelines (See Appendix A fr additinal infrmatin) The recipient f the award alng with amunt and nature f the award determines the prcess and reprting guidelines. General Infrmatin: Recipient f award, prize, gift r incentive BSU emplyee (faculty, prfessinal, staff, temprary)-excludes student emplyees Generally, the value f an award, prize, gift, r incentive given by the University is taxable t an emplyee as a wage, included n the Frm W-2, and subject t Federal, State and Lcal Incme tax withhlding, scial security and Medicare. IRC 74; IRC 3121(a)(20) unless it qualifies fr ne f the exceptins abve. If the University pays the emplyee s share f the taxes n a taxable award, prize r gift these amunts are additinal wages t the emplyee (few exceptins exist, but are nt applicable t BSU) and are subject t all payrll taxes, as discussed abve. BSU students Awards and prizes received by students that ARE NOT cnsidered cmpensatin (n services were perfrmed) will be reprted n IRS Frm 1099MISC Bx 3 if the value f the recgnitin is $600 r mre. Any award, prize, r incentive presented t a student when services were perfrmed will be deemed cmpensatin. Nn-BSU persns All taxable awards, prizes, gifts, and incentives nt meeting the de minimis exceptin will be reprted n IRS Frm 1099MISC if the value f all payments and/r fair market value f tangible prperty is $600 r mre. Amunt: Award Level Under $40 BSU has determined t treat all recgnitin items under $40 as qualifying fr de minimis status. Therefre, n IRS Frm W-9s, scial security numbers, r BSU ID numbers will be required. Hwever, a list f the recipient s names (frm available) must be prvided. The ratinale is that the effrt expended t track and cllect this infrmatin is cst prhibitive. Over $40 up t $100 IRS Frm W-9 will be required frm all nn-bsu persns. BSU students and emplyees must prvide their BSU ID number. Over $101 IRS Frm W-9 will be required frm all nn-bsu persns. BSU students and emplyees must prvide their BSU ID number. All BSU emplyees must be paid thrugh Payrll Services as a miscellaneus payment. Nature f Awards, prizes, gifts, r incentives Check r ACH Direct Depsit Cash Tangible Prperty

6 Prcessing Instructins: CHECK r ACH Direct Depsit (Preferred Methd): The fllwing frms shuld be cmpleted (per frm instructins) and frwarded t the Accunting Office: Payment Request Vucher Award, Prize, Gift, Incentive Frm typically ne per persn r use in cnjunctin with Recipient List fr multiple recipients Recipient List (if applicable) fr multiple recipients The department shuld prepare the abve frms in rder t: Pay the recipients by check, (Exceptin: Nn-student BSU emplyees must be paid thrugh Payrll Services as a miscellaneus payment if ver $100.) 1. Reimburse individuals wh purchased tangible prperty n behalf f the department that will be used fr recgnitin purpses (prefer items t be purchased with DPOs and POs) 2. Pay a vendr fr the purchase f tangible prperty that is used fr recgnitin purpses (prefer items t be purchased with DPOs and POs) The cmpleted frms shuld be ruted t the Accunting Office fr prcessing. Please allw 7-10 business days as many f the participants will need t be set-up as a vendr which can be time cnsuming. If the Payment Request Vucher is t pay fr tangible prperty that will be used fr recgnitin purpses, the Award, Prize, Gift, Incentive Frm and the Recipient List (if applicable) will need t be sent t the Accunting Office as sn as the tangible prperty has been dispersed. CASH Methd: T request cash Miscellaneus Cash Advance Frm shuld be prepared and signed by the Prject Manager, Directr, r Faculty member in charge f the prject. Only request the amunt f mney required fr a specific prject and it will be dispersed in a timely manner. The cash advance frm creates a receivable in the name f the persn wh signed and authrized the frm. (see frm instructins fr mre infrmatin) T clear the receivable - Payment Request Vucher - In the descriptin bx f the Payment Request Vucher, please indicate this is t clear the cash advance. Highlight this explanatin. If a Payment Request Vucher and list f names is nt prcessed within six mnths frm the issuance f the cash advance, the authrizing persn s payrll may be garnished t cver the utstanding receivable. Award, Prize, Gift and Incentive Frm Recipient List (frm) attach a list f names indicating wh received the incentives. The participants are als required t sign the frm t cnfirm they received payment. NOTE: If the prject allws the participants t be annymus due t the revelatin f persnal and cnfidential infrmatin, the Prject Manager shuld assign a number r cde t each persn. Please submit the list f numbers r cdes with the Payment Request Vucher.

7 TANGIBLE PROPERTY (Methd) - Prperty is valued at its Fair Market Value. Tkens/small items: Prducts may be given that are insignificant in value t all persns (including emplyees) withut triggering a taxable reprting event. Fr emplyees, hwever, if the cst f the benefit, in additin t ther gifts, prizes r awards given t that emplyee during the year des nt exceed $40, the benefit des nt need t be reprted t Payrll Services as wages subject t incme taxatin. These items shuld be under the $40 value and btained thrugh the Purchasing Department by way f DPO(s) r PO(s) (r Cmputer Shwcase/ Bkstre). Award, Prize, Gift and Incentive Frm -fr dcumentatin purpses, we still request a list f recipients, r initials t prve the items were distributed in cnjunctin with a particular prject Recipient List (frm) fr multiple recipients: attach a list f names indicating wh received the incentives. The Award, Prize, Gift and Incentive Frm and the Recipient List must be frwarded t the Accunting Office. These frms shuld include the DPO r PO number used t purchase the items. Tangible Prperty ver $40: Fllw the same prcedure as abve fr under $40 items. Reprting: All awards, prizes, gifts and incentives ver the $40 value (cash, check r tangible prperty) will be tracked in the Accunting Office. The Accunting Office will determine if the item qualifies fr ne f the exemptins abve (length f service, safety award). The Accunting Office will frward a list f emplyees receiving taxable items with an accumulated value f ver $40. Payrll Services will add the value f these items t the emplyee s cmpensatin recrd which will be included n their W-2. At year-end the Accunting Office will review the list f nn-emplyee recipients t determine if any individual (r ther taxable entity) received $600 r mre in benefits (cash, check r tangible prperty). If mre than $600, Accunting Office will prepare an IRS 1099MISC Frm fr the recipient. GIFT CARDS/GIFT CERTIFICATES: The use f these items is prhibited. Under rare ccasins, they may be used if apprved by the Cntrller s Office. Specific instructins will be given when cntacted. In additin t the plicy set frth abve, permissin fr ffering an incentive must be apprved by Leisa Julian (lijulian@bsu.edu) t ensure cmpliance with Indiana gaming laws.